Sainsbury makes bid for Asda
• CEO takes a bold step to transform retail and fight off incursions from German discounters and online shopping
J Sainsbury CEO Mike Coupe is fighting back against Amazon.com and discount grocers with another big takeover bid — a multibillion deal with Walmart that would transform Britain’s supermarket business.
The company plans to unveil details of a combination with Walmart’s Asda chain on Monday after confirming a Bloomberg News report on Saturday that the companies were in discussions. Sainsbury ranks second among UK supermarket chains, followed by Asda and behind Tesco.
For Coupe, who took over four years ago as CEO, the step would be the boldest — and riskiest — yet to transform the UK retail scene amid incursions from German discounters Lidl and Aldi and the rise of e-commerce. The deal would build on Sainsbury’s 2016 acquisition of general merchandise retailer Argos, which has begun to bolster the grocer’s profits as fierce price competition and Brexit-induced pound weakness squeeze margins.
Combining Sainsbury, with a market value of £5.9bn, with Asda would create a giant to rival or even surpass Tesco in market share, with about 2,800 stores, nearly 350,000 employees and sales of £50bn.
“There’s undoubtedly some scale benefits in buying,” said Bryan Roberts, an analyst at TCC Global. Still, combining “doesn’t get rid of the problems both companies face”, he said.
“They still won’t be cheaper than Lidl or Aldi.”
PRICE SQUEEZE
Coupe, who has worked at Asda and other UK retailers, has been pushing to reshape the Londonbased company as it wrestles with the online threat that has contributed to the demise of department store chain BHS, electronics retailer Maplin and the UK arm of Toys “R” Us.
Supermarkets have not been spared, cutting thousands of jobs in response to a pricing squeeze worsened by the weakness in the pound.
Reported profits of Tesco and Marks & Spencer Group have more than halved in three years. Compounding their woes is Britain’s switch to online shopping at a rate that outstrips many other countries.
About 18% of retail sales happen online in Britain, compared with 12% in the US.
While Coupe has defied some analysts’ expectations by integrating Argos and wringing out cost savings, weaving together Asda with Sainsbury could present bigger challenges.
The Walmart division is favoured by shoppers on tight budgets, and Sainsbury appeals to a more affluent crowd.
Sainsbury has expanded aggressively into convenience stores and is focused on the south of England around London. Asda has more large supermarkets across the north, so the geographical distribution limits store overlap.
Synergies could be minimal in areas like marketing if Sainsbury and Asda maintained separate brand identities, said Roberts, adding that he did not expect the proposal to face major competition hurdles, but divestitures of individual stores might be needed in areas where the two grocers overlapped.
An Asda representative declined to comment. Walmart was not immediately available for comment.